Written by Patrick Ingram, Retirement Specialist 31st July 2019

Recently, the media has reported that average life expectancy is no longer increasing.

Beware: it’s a blinkered view.

In fact, the clients you work with will probably enjoy a better than average life expectancy because of their lifestyle and wealth.

Club Vita data from actuarial experts Hymans Robertson shows that, for those who could be classed as more ‘comfortable’ financially, life expectancy is still rising.

‘One size fits all’ longevity projections no longer apply.

What longevity assumptions are you building into retirement plans?

Many advisers still use Office for National Statistics (ONS) data for their longevity assumptions. However, this isn’t your only option - more personalised data is available.

It is important to recognise that ONS statistics are based on estimates of the number of people alive in each local area. Local authorities cover very large areas with a diverse population, wealthy and poor, sick and healthy. Advisers, however, work with individual clients, not averages.

You can use statistics to identify regional diversity in life expectancy (also called average life span). For example, the latest ONS data suggests that a 65-year-old man in England will live on average another 19 years, compared to 17.5 years in Scotland.

Dig deeper into variations in life expectancy using ONS data, and you’ll see a different range depending on the local authority your client lives in. For example, life expectancies for men in England at 65 range from 16 to 22 years, compared to between 15 and 19 ½ years in Scotland.

Table 1 shows variations by country within the UK, together with comparable figures from Club Vita.

Table 1: Life expectancy from age 65
Men Women
Lowest Highest Lowest Highest
Local authorities England 16.1 22.1 18.7 24.1
Scotland 15.2 19.5 18.1 21.1
Wales 16.7 19.7 19.4 22.0
Northern Ireland 17.1 18.8 19.9 21.4
Club Vita Parmenion range (not including future improvements in medicine and healthcare) 14.7 22.8 18.3 24.8
Club Vita Parmenion range (including future improvements in medicine and healthcare) 16.4 25.0 20.3 27.1

Lowest column shows lowest local authority longevity figures in that country.

Highest column shows highest local authority longevity figures in that country.

A more personalised approach

Uncertainty about the lifespan of a client brings with it business risk, but this risk can be managed by basing retirement plans on better data.

Several organisations collect and analyse data on individuals for just this purpose. One such organisation is Club Vita, who use a combination of postcodes, income/wealth and health to provide a tailored life expectancy.

How is Club Vita different?

Club Vita collects data from UK defined benefit pension schemes. Using data on over 3 million individuals it has identified how lifestyle (as determined by postcode information), wealth and health impact life expectancy. While collected from occupational DB pension schemes, the variables used to identify life expectancy (e.g. lifestyle) are relevant to individuals regardless of the source of their retirement income.

Challenges to using ONS data

The numbers published by the ONS do not allow for future changes in life expectancy. Todays 65-year-old will have more chance of living to old age than previous generations, due to advances in medicine and health care. This increases the life expectancies quoted in Table 1 by around 2 years. Men living in the local authority with the highest longevity will, on average, live for 25 years after 65 (to age 90). That figure is 27 years (to age 92) for women.

Helping clients with retirement planning isn’t just about average lifespans. With 1 in 10 people expected to live 10 years beyond the quoted median life expectancy, clients need to consider what might happen if they are one of the ‘lucky ones’ who may live longer. The table below shows the dramatic difference in chances of reaching 100 between an unhealthy 65-year-old man living in one of the lowest life expectancy postcodes, and a healthy 65-year-old woman living in a high life expectancy postcode.

Table 2: Chance of living to 100
Men Women
Lowest Highest Lowest Highest
Chance of living to 100 for a current 65 year old 0.7% 11.2% 2.4% 17.6%
Expressed as odds 1 in 150 1 in 9 1 in 40 1 in 6

What does this mean for advisers?

Financial advisers need to be able to project client life expectancies as accurately as possible. That’s where Parmenion’s new Income Manager Tool (IMT) is really helpful. The IMT tailors life expectancy to individual customer data using Club Vita. It also delivers stochastic modelling of investment returns and allows you to forward price annuities, if this is appropriate for either your client or your business risk analysis.

If you would like to know more about the data available and how this can benefit your client retirement planning, please contact us.

“The above article is intended to be a topical commentary and should not be construed as financial advice from either the author or Parmenion Capital Partners LLP. If a client wishes to obtain financial advice as to whether an investment is suitable for their needs, they should consult an authorised Financial Adviser. Past performance is not an indicator of future returns.”

Any news and/or views expressed within this document are intended as general information only and should not be viewed as a form of personal recommendation. All investment carries risk and it is important you understand this. If you are in any doubt about whether an investment is suitable for you, please contact your financial adviser.